Tata-Fiat JV to set off Rs 300 cr losses, restructure ops

The two groups are looking to revive Fiat India Automobiles by setting off accumulated losses of Rs 300 cr and restructuring its operations.

MUMBAI: Days after Tata Group partnered Montezomolo family of the Fiat group to bid for international luxury hotel chain Orient-Express, the two groups are looking to revive their Indian manufacturing joint venture, Fiat India Automobiles, by setting off accumulated losses of Rs 300 crore and restructuring its operations.

The two shareholders have decided to set off accumulated losses in the accounts of Fiat India Automobiles by setting it off against Rs 175.24 crore available in the venture's securities premium balance and Rs 124.76 crore of its paid-up capital, a person close to the development told ET.

As part of its restructuring, the manufacturing joint venture is considering charging Fiat a specific fee for building its cars, they said.

This follows the formation of Fiat's national sales company, Fiat Group India Automobile Pvt Ltd, which will now independently market and sell all the Fiat products in the country. Earlier, all the profits or losses incurred by Fiat on the marketing front were borne by the manufacturing joint venture.

"With the change in the marketing structure, the payment framework will also be changing and, therefore, there are lots of things under discussion, but nothing is finalised as yet," said one person close to the development.

So far, Tata Motors paid a specific flat fee for manufacturing cars at the Ranjangaon plant of Fiat India Automobiles, but the joint venture incurred all the marketing and distribution costs associated with selling Fiat cars.

When contacted, a Fiat India spokesperson said, "We do not comment on the financials of the company."

Apart from setting off losses, Fiat India Automobiles has also extended its 2011-12 financial year by another six months, to start with the clean slate with a six-months fiscal year from October 2012 to March 2013.

Fiat Group India Automobiles Limited is starting with a corpus of Rs 50 crore to manage the working capital needs of the marketing company. As of now, the company is in the process of appointing independent dealers across the country. It aims to have 70-90 dealerships in the next 18 months time.

Experts say this move is likely to strengthen the balance sheet of the manufacturing venture and may help manufacturers to reduce losses, break even into profits and leverage the balance sheet to raise loans for future to meet expansion,

"The move will help to strengthen the balance sheet of the JV Company and will give them a clear idea of the loss making company. It may also help them in raising further funds for manufacturing company for future expansion," Deepesh Rathore, head, IHS Automotive, told ET.

The joint venture posted a loss of about Rs 288.69 crore in 2009-10 and brought it down marginally to Rs 227.04 crore in 2010-11 with increased component exports.

The venture has been taking steps to improve capacity utilisation, especially of engines that it supplies to Maruti Suzuki, Premier and export markets. The firm plans to manufacture close to 2 lakh engines, which means a capacity utilisation of 80%.

However, Fiat cars continue to struggle in India.

In 2011-12, its domestic sales fell 24% to just 16,095 units in spite of hefty discounts of up to Rs 1 lakh. In 2010-11 too, its sales dropped 15% when the overall market grew 25-30%. This fiscal, the Fiat is mandated vendors will volumes of 14,000 units.

Fiat is now among the bottom six of the 19 passenger vehicle makers in India with just about 0.6% market share in 2011-12.